These models, such as the economic capital model discussed above, concern the whole of the financial institution. But mathematical models can also contribute on other levels – the department or product level, for example – to quantify risks. Examples of this are the market risks of a trading portfolio, determining the risk profile of an investment fund, or the optimization of an investment portfolio.
There are several standard approaches to quantify risks. One possibility is to use risk measurements that express the potential loss (in terms of market value or with respect to the income over a certain period) in statistical methods such as Value-at-Risk (VaR), Earnings-at-Risk, or Economic Capital.
A decent risk management function will use several, complementary risk measures to arrive at the risk profile of the portfolio. This can be a combination of VaR and scenario or sensitivity analyses.
Another element that is equally important to corporates, financial institutions and organizations in the public sector, is the correct valuation of financial products. Although many prices can be observed directly in the market, this is not the case for more complex or less frequently traded financial products.
Consequently, it is often difficult to determine a market-consistent valuation. The need for market-consistent valuations is becoming more pronounced due to changes in accounting regulations. At Zanders, the Valuation Desk is specialized in valuing financial products and portfolios.
For corporates, modelling & valuation is typically focused on optimizing shareholder value. We offer practical solutions based on a theoretical framework combined with our own proprietary models. We also have expertise in credit assessment applications and their ongoing maintenance.
Zanders can provide support during the initial application process, from drawing up the ‘rating bible’ to granting the definitive rating. Our consultants’ independence and expertise ensure total confidentiality in handling any information provided.
